Equity Incentive Definition of incentive stock options ?As companies increasingly decentralized and stock management techniques become more complex, the world&#39;s largest companies for a reasonable incentive for companies to management, innovation incentives, have introduced the form of stock options and other equity incentives. Incentive is an operator obtained by the form of company stock to give enterprise managers a certain economic rights, to enable them to participate as shareholders ﹑ share profits, business decisions to take risks, so diligently for the company&#39;s long-term development services kind of incentive method. &lt;/: SIGN&gt; The principle of equity incentives of managers and shareholders is actually a relationship between the agent, shareholder management of assets entrusted manager. But in fact, in the agency relationship, because of information asymmetry between shareholders and managers do not fully contract, rely on the manager&#39;s &quot;moral self-discipline.&quot; Shareholders and managers is inconsistent with the goal, the shareholders wish to maximize the value of their equity holdings, the manager wants to maximize its effectiveness, so that exists between shareholders and managers, &quot;moral hazard&quot; incentive and restraint mechanisms through to guide and limit behavior of managers. Incentives in different ways, mainly according to the manager the wage conditions and qualifications companies are of pre-defined, relatively stable in a given period, so the relationship with the company&#39;s performance is not very close. Bonus financial indicators generally the assessment to determine the manager&#39;s income, and is therefore closely related to the company&#39;s short-term performance, but no significant relationship between the company&#39;s long-term value, managers may be short-term financial targets for the company&#39;s long-term interest expense. But from the shareholder point of view, his concern is the increase in the company long-term value. Especially for growth-oriented companies, the value of managers is to achieve more long-term value of the increase in the company, not just short-term financial targets to achieve. For managers concerned about the interests of shareholders, need to pursue the interests of managers and shareholders, as much as possible in line. In this respect, equity and incentive is a better solution. By making managers holding shares in the period of time to enjoy the equity value-added income, and to some extent to take risks, you can make in the course of business managers care more about the company&#39;s long-term value. Equity incentive managers to prevent short-term behavior, and guide their long-term incentives for good behavior and a constraint. Incentive meaning and significance? Incentive is the enterprises under certain conditions, to a certain way (stock) to give the business a number of companies who stock to carry out a system of incentives. It can be short-term interests and long-term business interests effectively combine to make business owners who stand to think the position of the development of enterprises, so as to achieve business benefits owners and operators jointly promote the win-win situation. In the implementation of equity incentive, the business owned by the enterprise&#39;s equity incentive program to establish a line under the right price. Therefore, the share price below the exercise price of incentive stock means that ordinary investors can lower prices than the executives to buy the stock. Therefore, in this sense, the stock fell below the exercise price of incentive stock means higher margin of safety. ? Incentive model (1) Performance shares Is determined at the beginning of a more reasonable performance goals, if the incentive object to the end of the year to achieve the desired objectives, the Company granted to its number of shares or extract some of the prize fund to buy shares. Cash flow performance of stocks usually have the time and quantity limits. Another stock with the performance models are very similar in operation and the role of long-term incentives is performance units, the difference between it and the performance of the stock is the stock performance of the stock is granted, the performance units are awarded cash. (2) stock options Refers to the object granted to a right incentive, incentive objects can be within a specified period of time to buy a pre-determined price of a number of outstanding shares of the company, you can give up this right. The exercise of stock options also have the time and quantitative restrictions, and the need to target their own incentive spending cash for the exercise. Some listed companies in China currently applied a virtual stock option is a virtual combination of stock and stock options that were granted to encourage the object is a virtual stock options, incentive objects acquired after exercise is a virtual stock. (3) Virtual Stock Refers to the object granted to a virtual stock incentive, incentive object can thus enjoy a certain amount of stock appreciation rights and dividend income, but no title, no right to vote, can not be transferred and sold, leaving the company to automatically invalid. (4) Stock appreciation rights Refers to the object granted to a right incentive, if the stock price up, encouraging the object can be obtained through the exercise of stock price appreciation of the corresponding number of income incentives do not object to pay cash for the right line, line of the right to receive cash or equivalent shares . (5) restricted stock Yes Zhi object prior to grant a certain number of incentive shares, but the source of the stock, sell There is some special restrictions, generally only when the excitation Duixiang for achieving certain goals (Ru into the black), the incentive Duixiang Caikepaoshou restricted stock Bing benefit. (6) deferred payment Refers to the company designed a package of incentive pay income program object, part of which is equity incentive income, equity incentive income does not grant that year, but according to fair market value of shares converted into the number of shares, after a certain period, or under the form of company stock when the stock market value of cash incentive paid to the object. (7) the operator / employee stock ownership The object is to hold a certain number of incentive stock of this company, the company&#39;s free gift of these stock incentive object, or subsidies to encourage companies to buy the object, or the incentive to buy the object at its own expense. Incentive object can benefit from stock appreciation in the stock devaluation loss. (8) management / employee buy Refers to the management or staff leverage financing to buy shares of the Company to become shareholders, and other shareholder risk and profit sharing, thereby changing the company&#39;s shareholding structure, control, and asset structure to achieve business ownership. (9) book value appreciation rights Purchase of specific types and virtual types are divided into two types. Object type is the incentive to buy in the beginning of the actual net asset value per share to purchase a certain number of shares, net asset per share at the end of the period and then sold back to the end of the value of the company. Type is the motivation of virtual objects without spending money in the beginning, the company granted incentive shares the name of the object number, in the end of the net assets per share, according to the company on behalf of the increment and the number of shares to calculate the incentive earnings target, and accordingly to target cash incentive. Above first to eighth species associated with the securities market equity incentive model, in the incentive model, the incentive object proceeds by the company&#39;s stock prices. The book value and stock appreciation rights are not related to equity incentive model, incentive object proceeds only with the company&#39;s financial indicators of a net asset value per share --- about, nothing to do with price. Equity Incentives and Market Manager Effectiveness of equity incentives to a large extent depends on the establishment of a sound market manager, and only in appropriate conditions, the equity incentive to play its lead manager role in long-term behavior of the positive. Manager acts with long-term interests of shareholders, in addition to its intrinsic interest than driving while under the influence of various external mechanisms, the behavior of the manager is ultimately the interests of its internal and external influences drive the balance of the results. Incentive is only part of external factors, its application requires a variety of mechanisms to environmental, these mechanisms can be summarized as the mechanism of market selection, market evaluation mechanism, control constraint mechanism which will incorporate incentives and environment provided by the Government policy Falv . 1. Market selection mechanism Full market selection mechanism can guarantee the quality of managers, and managers have long-term behavior of the constraints guide. Administrative appointment or other non-market selection method to determine the managers, it is difficult and long-term interests of shareholders in line, it is difficult to play a role in incentive and restraint mechanisms. For such managers to provide equity incentives is no basis, nor the interests of shareholders. Professional managers provide a good market, the market selection mechanism, a good state of market competition will eliminate unqualified managers, managers in this mechanism is market-determined value, the manager will consider in the course of business in the manager&#39;s own The value of the market positioning and avoid speculation, such acts as lazy. In this environment, equity incentive may be the only economic and effective. 2. Market evaluation mechanisms No objective evaluation of effective marketing, it is difficult on the company&#39;s value and performance of managers to make a reasonable assessment. Excessive manipulation in the market, excessive government intervention and social audit system can not guarantee a fair and objective circumstances, the capital market is inefficient, it is difficult to determine the company through the stock price long-term value, it is unlikely way through incentive stock options evaluate and motivate managers. No reasonable fair market evaluation mechanism, the manager of market choice and the incentive will be impossible. Incentive means, of course, as an incentive will be impossible to play. 3. Control constraint mechanism Control constraint mechanism is to manager the restrictions, including laws and regulations, policies, company policy, corporate control management system. Good control constraint mechanism, to prevent the failure of the manager&#39;s behavior, to ensure the healthy development of the company. Binding mechanism is the role of incentives can not be replaced. Some domestic problems of state-owned enterprise managers, not just motivate the problem, the problem is largely bound to strengthen the corporate governance structure of the building will help to improve the efficiency of binding mechanism. 4. Comprehensive incentive mechanism Comprehensive incentive mechanism is the means through integrated behavior of the manager&#39;s guide, specifically including wages, bonuses, equity incentive, promotion, training, benefits, good working environment. Different incentives and effectiveness of its incentive-oriented is different, different companies, different managers, different environments and different business methods corresponding to the best incentive is different. Companies need to design incentives under different combination of circumstances. One form of incentive stock options, all depending on the size of incentive costs and benefits in consideration. 5. The policy environment Government&#39;s obligation to adopt laws and regulations, management system in the form of the form and strengthen the mechanisms to provide policy support to create a favorable policy environment, inappropriate policy will hamper the role of various mechanisms. Domestic equity incentive, in the operational source key face stock, stock sales channels and application of specific legal issues, market environment, the Government also needs to strengthen the capital market to eliminate the unreasonable monopoly protection, separation of enterprise Reform of the operator by means of appointment to create a favorable policy environment. The key point of equity incentive Yintl (Ying Teng Consulting) for the enterprises through the design of equity incentive plan, equity incentive from which summarizes the main design of several key points: An encouraging pattern of choice. Excitation mode is the core issue of equity-based incentives, will determine the effectiveness of incentives. 2, identifying target incentive. Equity Incentives to motivate employees, balance long-term goals and short-term business objectives, in particular concerned about the long-term development and strategic business goals, therefore, must determine the incentive object-oriented enterprise strategic objectives, namely, selection of the most valuable business strategy personnel. 3, share the source of funds. Since the object is to encourage natural, and therefore the source of funds throughout the planning process to become a key point. 4, assessment index design. Exercise certain incentive stock options tied to performance, one of which is the company&#39;s overall performance conditions, other indicators of personal performance evaluation. 5, determine the incentive amount. Incentive Status 1 small plate excitation Equity As of April 30, 2008, the Shenzhen SME Board 221 listed companies are scheduled to disclose its 2007 Annual Report, 2007, board members of listed companies and equity incentive compensation cases full disclosure. Overall, small board of listed companies can truly reflect the situation of the company&#39;s pay and high pay and company directors and supervisors showed a positive correlation between performance. Small plate 25 listed companies launched equity incentive plan, of which 7 have entered the implementation phase, the remaining 18 are in the plan and report to the Commission&#39;s record board approval stage. In the 25 companies, most companies approach using stock options, the exercise condition was treated with ROE, net profit growth and other indicators should be limited, to ensure the company&#39;s long-term stable growth. 2, the excitation Listed Companies Entered after 2008, received domestic and international economic and financial situation affecting, A shares have a dramatic correction. Rational stock return of the equity incentive plan with an excellent implementation of the new space, the listed equity incentive program launched the initiative greatly increased. Just in the first quarter on a total of 21 companies announced a stock incentive program, in which 13 models with stock options, restricted stock 5 used, two with stock appreciation rights, restricted stock with a stock appreciation rights mixed mode. 2007, the company&#39;s equity incentive program listed in number far more than in 2006, the year a total of 13 listed companies launch equity incentive plan. 2007 Equity Incentive listed companies showed the following significant features: First of all, though there is far more than in 2006, but the quality of equity incentive programs there are a significant improvement. State-owned holding companies in particular equity incentive gradually scientific norms, the performance of equity incentive in improving the performance evaluation system, of scientific performance evaluation indicators. Second, the program announced in 2007, all options are stock options. Standing of the shareholders and the company&#39;s point of view, compared to restricted stock incentive program, stock options model has two significant advantages: a model of stock options more difficult to obtain benefits, incentive earnings target of all the shares of listed companies from The grant price of the premium. Second, stock option plans of listed companies, basically no effect on cash flow. Stock Option Employee stock ownership incentive system is based on the form of access to company stock De Jing Ji to a certain extent the right to make Neng Gou Qi Ye Yi shareholders of Shenfencenyu decision-making, profit sharing and assume an operator Fengxian, business interests and the interests of employees Zishen Gengdachengduo De Bao Chi consistent, so diligently for the company&#39;s long-term development of a system service. Incentive to improve corporate governance, reduce agency costs, improve management efficiency, enhance cohesion and competitiveness of the company play a very active role. Usually equity incentive including ESOP (Employee Stock Ownership Plan, referred to as ESOP), stock options (Stock Option) and management buyouts (Manager Buyout, referred to as MBO). Extended reading: 1. Equity Incentive Plan Design Consulting: www.heyeehrm.com 2.http: / / wiki.mbalib.com / wiki /% E8% 82% A1% E6% 9D% 83% E6% BF% 80% E5% 8A% B1 3. Ying Teng &quot;management market,&quot; series of books (&quot;Performance of Sword&quot;, &quot;Cultural Road&quot; and &quot;public policy&quot;) 4. Equity Incentive Consulting think tank:: http://www.yintl.cn/Wisdom/Wisdom.asp 5.http: / / www.hjcn.com.cn/news/media/826360419.html &quot;Central Business Review&quot; Open Category: Business management, company law, securities law, management, market Incentive should be how Secretary equity incentive plan when the pilot is above the total Sanshiliuji! PI Hai Chau: equity incentive needs to be done &quot;four combination&quot; is undeniable, equity incentive, to a certain extent, to the CEO&#39;s interests with the interests of listed companies together, and thus arouse the enthusiasm of executives with responsibility . However, this is only from the design or is in theory, but in actual practice, to give full play the positive role of equity-based incentives, equity incentives are necessary to make &quot;four combinations.&quot; The first, and &quot;punish&quot; the combination. As an incentive, it should be &quot;reward&quot; and &quot;punishment&quot; of the combination. In fact for a complete ** ** Institutional system, the reward system is closely linked, the &quot;prize&quot;, then there is &quot;punishment.&quot; If only &quot;prize&quot; and not &quot;punishment&quot;, then this incentive is to change the way to get executives &quot;making money.&quot; Therefore, the reward system must be combined with the disciplinary system, in the &quot;business growth&quot;, while incentives for executives, for the &quot;performance down&quot; those who should be punished the same proportion. The equity incentive as a business incentive mechanisms, it also needs to follow this principle. Upon completion of performance evaluation indicators, to give executives a &quot;stock&quot; award, but did not complete the performance in time, should be withdrawn or reduced certain &quot;equity.&quot; Second, combining the level of executive pay. Currently the CEO did not pay an annual low, can be said that those holding high salary executives of listed companies for the development of due diligence is their job, there is no other thing to share-based compensation. Now in order to better the interests of the executives with the interests of the company together, that will have the advent of equity incentives. Among these invisible to the executives added a new revenue sources. Therefore, in order to reflect fair and reasonable incentive stock options, it is necessary to stock incentive and executive compensation in the high and low together. Companies to take high salaries, the proportion of its equity incentive should be low; the contrary, a low-pay companies, the proportion of its equity incentive can be appropriately increased number. Thirdly, with stock market value of combined assessment. The interests of executives with close ties to the interests of investors. The increase or decrease in market value gains and losses for investors the most direct expression. Generally speaking, good benefits listed companies, listed company&#39;s share price will rise, thus leading to the increase in market capitalization. Therefore, in this case, equity incentives to executives to be reasonable. Otherwise, the stock market decline, investors appeared investment loss, in which case the equity awards to executives on the situation does not match up to reason. Fourth, with the return to secondary market investors combined. The growth performance of listed companies should also be reflected in the growth of shareholder return on investment. If that growth is not reflected in the secondary market investors to invest in the growth of return, then, for the shareholders, this growth is only a piece of paper wealth has no real meaning at all. Therefore, the equity incentive for executives to increase in proportion with the dividend yield combined proportion of this increase accrued as a percentage of equity incentives.